C.R. Bard Inc. reported adjusted earnings of $2.56 in the second quarter of 2016, exceeding the Zacks Consensus Estimate by a dime and also improving 11.1% from the year-ago quarter. Adjusted earnings were also better than management’s guided range of $2.43 to $2.47 per share.

Adjusted earnings included after-tax impact of certain items including amortization of intangible assets ($21.7 million), acquisition charges ($2.3 million), asset impairment charges ($1.2 million) and restructuring and productivity initiatives charges ($7.8 million).

Net sales increased 8.3% on a year-over-year basis at $931.5 million, much better than the Zacks Consensus Estimate of $913 million. At constant currency (cc), net sales increased 9% from the year-ago quarter, which surpassed management’s guided range of 6.5% to 8%.

Unfavorable foreign currency exchange rate impact was 70 basis points (bps) year-over-year, which was an improvement from 190 bps impact reported in the first quarter of 2016.  
 

Organic growth was 6.4%, which slowed down from 9% reported in the previous quarter. However, the figure was better than the management’s guided range of 5.5% to 6%.

U.S. net sales improved 7% to $633.1 million. International sales increased 11% on a reported basis to $298.4 million. At cc, international sales increased 14% in the quarter.

At cc, Europe and other international territories reported sales increases of 7% and 15%, respectively. Sales in Japan surged 29%, while emerging market sales (10% of total sales) remained strong.
 

Segment Details

Vascular product sales increased 2.7% year over year (up 3% at cc) to $255.3 million.

Excluding the Gore royalty payment, divestiture of Electrophysiology products to Boston Scientific (BSX Quick QuoteBSX - Free Report) , sales of products from Liberator Medical and improved sales in Japan following the acquisition of the company's joint venture (altogether non-operational items) organic sales were up 6%.

Sales in the U.S. increased 3%, whereas international sales were up 12%.

Sales from surgical graft were up 5% in the quarter. The Endovascular business sales improved 6%. Within the Endovascular business, peripheral PTA line sales increased 10%, driven by accelerating demand for the Lutonix drug-coated balloon (DCB) in the U.S.

Notably, the growth rate was commendable as the year-over-year comparisons were difficult for the segment line, due to Boston Scientific’s stocking of Lutonix DCB in the second and third quarter of 2015.

Nevertheless, management at C.R. Bard noted good sequential momentum in both the U.S. and International markets for the product line. However, we note that peripheral PTA line sales growth slowed down from 19%, reported in the first quarter of 2016.

Sales from biopsy products climbed 10%. Sales from the stent business increased 1%, while Vena cava filter line sales increased 3% in the quarter.

Urology sales increased 15% on a year-over-year basis (up 16% at cc) to $240 million. Excluding non-operational items, organic sales increased 4% from the year-ago quarter. Moreover, excluding the two acquisitions (Liberator Medical and company’s joint venture in Japan) sales in the U.S. increased 4%. International sales improved 5% on a year-over-year basis.

Within Urology, sales from the basic drainage business soared 19%. Excluding the two acquisitions, sales increased 6% in both the U.S. and international markets.

Sales of Infection Control Foley increased 3% in the U.S. and 2% in the international markets. Sales from the continence business surged 34%, driven by higher contributions from the new acquisitions.

Temperature management product sales were up 19%. Sales from urological specialties were up 9%, including the Brachytherapy product line, which increased 7% globally. StatLock catheter stabilization line decreased 5% in the reported quarter.

Oncology sales were up 7% (up 8% at cc) at $2525.4 million. Adjusting for the non-operational items, organic sales grew 6%. Excluding the two acquisitions, sales climbed 4% in the U.S. and 13% outside the U.S.

PICC sales grew 10% globally while port line sales were up 4% on a year-over-year basis. Meanwhile, sales from the vascular access ultrasound product line were up 4%. Lastly, sales from the dialysis catheter business rose 13% in the quarter.

Surgical Specialties sales increased 11% (up 12% at cc) to $159.9 million. Excluding the non-operational items, organic sales were up 11%. U.S. sales increased 11%, while international sales were up 13%.

Performance irrigation business (now less than 1% of total sales) declined 3% in the reported quarter.

Sales at the bio-surgery business (20%--25% of surgical specialties business) surged 16% on a year-over-year basis, while soft tissue repair business grew 12%. Within soft tissue, synthetic hernia products sales grew 18% from the year-ago quarter.

Moreover, hernia fixation business sales improved 49%, while natural tissue products decreased 27% on a year-over-year basis.

Sales from the Other product line increased 4% on a year-over-year basis to almost $24 million.

Product Pipeline Update

C.R. Bard stated that DCB long lesion supplement is currently under review with the U.S. Food and Drug Administration (FDA). The company expects to gain approval for the treatment of lesions up to 300 millimeters in length by 2016 end.  

For Below-the-Knee product, enrollment is currently in progress, while the AV Access DCB IDE (Investigation Device Exemption) study is in follow-up status.

The company expects clinical results by the fourth quarter and anticipates filing the premarket approval application (PMA) in the first quarter of 2017. The company expects to launch the product in late fourth quarter of 2017.

Late third quarter of 2016, C.R. Bard expects to submit clinical data for the in-stent restenosis PMA. In Japan, the company’s Shonin submission for the Lutonix SFA indication is under review. The company anticipates a mid-2017 launch. In China, the company continues to enroll patients for its Levant China study that began last quarter.

VENOVO venous stent IDE study is also in active recruitment. C.R. Bard expects to continue enrollment throughout this year with follow-up in 2017 and PMA submission in 2018.

During the second quarter, C.R. Bard launched new True Flow Valvuloplasty Balloon family under the vascular division. The company recently launched the EnCor Enspire system in China. The UltraCor Twirl breast biopsy marker was also launched in the U.S. and Europe.

In Endourology, the company launched two new stone basket configurations for its SkyLite platform.

C.R. Bard received the FDA approval for its LifeStent system with indications covering the entire popliteal artery. The company also received clearance on for its new chemical resistant PowerPICC family named the PowerPICC EtOH.

New Power Midline and PowerGlide Pro family of intermediate dwell catheters also received approval. Most recently, the TRIDYNE aortic sealant was approved by the FDA, and the company to launch the product in the second half of 2016.

C.R. Bard plans to launch its new PICC family of products designed to reduce the risk of thrombosis or DVT in the back half of this year.

LifeStream Balloon Expandable Covered Stent trial has completed follow-up, and the final PMA module was submitted recently with the FDA. C.R. Bard expects an approval and launch in mid-2017.

C.R. Bard also received a number of IDE approvals including COVERA next-generation AV access circuit stent graft and new neurogenic fever prevention and control clinical study,

Operating Performance

Adjusted gross margin expanded 130 basis points (bps) on a year-over-year basis to 66.2%. Favorable product mix (110 bps) and cost improvements (120 bps) were partially offset by pricing pressure (10 bps) and unfavorable foreign exchange rate (80 bps). The gross margin expansion was better than management’s expectation of 100 bps growth.

Marketing, selling & administrative expenses increased 11% year over year to $276.5 million. The rise was primarily due to acquisition-related expenses. Research & development (R&D) expenses increased 13.4% to $70.9 million.

Guidance    

For the third quarter of 2016, sales growth is forecasted between 8% and 9%, at cc. On an organic basis, management estimates sales growth in the 6% to 6.5% range. Adjusted earnings are projected in the range of $2.51 to $2.55 per share.

For full-year 2016, C.R. Bard now projects organic revenue increase in the range of 8% to 9%, up from earlier guided range of 7% to 8.5%, at cc, implying a currency headwind of 1%. Organic sales growth is likely to grow in the range 6.5% to 7%, up from 5% to 6% guided earlier.

Earnings are forecasted in the range of $10.10 to $10.20 per share, up from earlier guided range of $10.05 to $10.18, reflecting year-over-year growth of 11% to 12% (14% to 15% earnings growth at cc). Currency headwind is expected to be in the range of 25--28 cents for the full year of 2016.

Zacks Rank & Stocks to Consider

Currently, C.R. Bard carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same space are Align Technology (ALGN Quick QuoteALGN - Free Report) and Halyard Health . Both the stocks sport a Zacks Rank #1 (Strong Buy).

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